UPDATE: Wednesday, July 10, 2013
An effort to restore lower interest rates on student loans has failed in the Senate.
The White House and most Senate Democrats favored restoring interest rates on subsidized Stafford loans to 3.4 percent for another year. But lawmakers on Wednesday were unable to muster the necessary 60 votes to overcome a procedural hurdle.
That left interest rates at 6.8 percent -- a rate that leaders from both parties called unacceptable.
Interest rates doubled on July 1 because Congress was unable to send a bill to President Barack Obama for his signature.
Few students so far have been affected because few sign their loans during the summer. But roughly a quarter of all federal lending is through the program and the new rates could affect millions of students.
Senate Democrats are trying to restore lower interest rates on student loans, a week after Congress' inaction caused those rates to double.
A procedural vote is scheduled for Wednesday on a Democratic-backed Senate measure that would return rates on subsidized Stafford loans to 3.4 percent for one year. An earlier attempt in the Senate to keep rates low came up short and rates for those loans doubled to 6.8 percent on July 1.
Ahead of the vote, the White House urged passage of a one-year extension.
Republicans, however, remained unimpressed with the plan and could scuttle the stopgap effort.
"This plan merely kicks the can down the road for 12 more months," said Sen. Richard Burr, R-N.C. "We're going to vote on a 3.4 percent extension, kicking the can down the road and not finding a solution."
The rate increase did not affect many students right away; loan documents are generally signed just before students return to campus, and few students returned to school over the July Fourth holiday. Existing loans were not affected, either.
However, absent congressional action in the coming weeks, the increase could spell an extra $2,600 for an average student returning to campus this fall, according to Congress' Joint Economic Committee. Lawmakers from both parties have criticized the increase and the costs passed to students, but there is little agreement on how to restore the lower rates.
"It's not fair for Democrats who run Washington to stand in students' way," said Rep. Cathy McMorris Rodgers of Washington state, a member of the House GOP leadership.
Countered Democratic Sen. Jack Reed of Rhode Island, "The Republican proposals are attractive in the short term but in the long term are extremely expensive."
During last year's presidential campaign, lawmakers from both parties voted to keep interest rates on subsidized Stafford loans at 3.4 percent. Yet this year, without a presidential election looming, the issue seemed to fizzle and the July 1 deadline passed without action.
Most Democratic senators favored keeping the rates at 3.4 percent for now and including a broad overhaul of federal student loans in the Higher Education Act rewrite lawmakers expect to take up this fall. Sen. Al Franken, D-Minn., said the matter needs to be viewed in a holistic way.
"How are we going to address the costs of college? How are we going to make college more affordable for our kids?" Franken said.
Yet an earlier Democratic attempt at a two-year extension failed to overcome a procedural hurdle before lawmakers left for the July Fourth holiday. Under Senate rules, 60 votes are needed to let the proposal go forward and Democrats alone cannot force it ahead.
A one-year extension seemed heading toward the same fate.
"What is good about a short-term political fix?" said Sen. Lamar Alexander of Tennessee, the top Republican on the Senate Education Committee.
Efforts to find a compromise seemed heading nowhere as well. Democratic Sen. Joe Manchin of West Virginia worked with Alexander to write a bipartisan bill that closely follows a bill the GOP-led House has already passed. That bill incorporated an idea that was included in President Barack Obama's budget to link interest rates to the financial markets.
Under the House plan, interest rates would be lower in the next few years but rise as the economy improves.
"That is not fair to students and it is certainly not good for our economy," said Sen. Patty Murray, D-Wash.
The Democratic chairman of the Education Committee, Sen. Tom Harkin of Iowa, also said the GOP proposal was not an option and stood opposed to considering it this summer. Instead, he insisted on a one-year extension of the current rates.
"Congress has an imperative to pass a plan to keep rates low now so that students and families struggling to afford college can count on affordable federal student loans," Harkin said.
Without an agreement, though, students are facing 6.8 percent interest rates on new subsidized Stafford loans, which typically go to students from lower- and middle-income families.
That is unacceptable, said Sen. Debbie Stabenow, D-Mich. "You can go out and get a car loan for 4 percent," she said.
Despite the widespread agreement that the current 6.8 percent interest rate is too high for students, there is little consensus on what to do.
House Speaker John Boehner, R-Ohio, has remained adamant that the chamber he leads has already taken action and it's up to the Senate to fall in line.
"Republicans have acted to stop student loans' interest rates from doubling," Boehner said. "The House has done its job. It's time for the Senate and the White House to do its job."
Senate Democratic leader Harry Reid has signaled he has no interest in anything beyond an extension of current rates until at least 2014 -- when a third of the Senate and the full House face re-election.
"Speaker Boehner says the House has acted and the ball is in the Senate's court," Reid said. "But Democrats can't support a plan that would be worse for students than doing nothing at all."